Land acquisition: Despite cut in time lag, spiralling project cost remains a concern

[Editor: What is to be understood is that this is just an Ordinance, which the NDA government brought to give some lift to the sagging infrastructure of the country. In the last 10-years the UPA government did everything to put a jolt to the development of Indian infrastructure. The result was soaring-inflation and drop in the GDP Growth to almost 50% from its peak levels. The media is unnecessarily pitching in for hard-gaga on the loopholes of the Ordinance more, rather than encouraging the government for taking such bold steps--unfortunate!! Relax!! Relax!! Many aspects of this bill is yet to become an act and hence it is puerile and premature to debate as to, whether it is Half-baked or Quarter-baked or 95% baked. Let there be a debate in the Parliament to iron out some of its rough areas---in any case misuse and wastage of land has to be minimized. Moreover, the text says, "Ever since the new land acquisition law came into force in early 2014, land prices have been on the rise, largely due to higher expectation of farmers, say industry players". It is to be noted that both Jaiprakash Associates Ltd (Rs.27.60) and HDIL (Rs.69.95) possesses one of the highest land banks in their respective areas. And what about the PVP Ventures Ltd (Rs.8.13)? Jaiprakash Associates raised around Rs.1,500 crore through a QIP in July, apart from selling assets including power projects and cement plants — the firm’s standalone debt has dropped to Rs.20,933 crore. In the last 17 months, it has sold three cement plants]

January 4, 2015: The Ordinance to amend the land acquisition law (Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013) appears to be a half-baked effort to jump-start stalled investments in the infrastructure sector.

The amendments gives some relief to certain types of projects, namely those related to defence, rural infrastructure, affordable housing, industrial corridors, and public-private-partnership projects with government ownership of land. At the ground level, the relaxations come in the form of absence of social impact assessment, in the consent clause for affected parties, livelihood provisions under Rehabilitation & Resettlement (R&R), and acquisition of multi-crop land.

However, the Ordinance is effective for six weeks till the end of coming Budget session of Parliament. In the event of a lack of consensus on changes in the Act among political parties, the government would have to re-issue the Ordinance. Such piece-meal legislative measures might not enthuse private investors looking for a resolution to long gestation issues around land acquisition and R&R packages.

Analysts tracking the infrastructure sector feel that road projects and industrial corridors might see some action on the ground over the next four to six months. "Sectors like housing, defence have longer gestation period and unlikely to benefit till the end of the year," says Abhilesh Babel, joint-CEO, real estate & social infra - advisory, Feedback Infra. Some projects, which are stuck due to issues around Right-of-Way, might see some traction over the next two-three months, he adds. Industry is likely to make a bee line for industrial corridors and PPP projects where this Ordinance applies, say some experts.

However, what the Ordinance does not address are concerns around spiralling project costs. 

Ever since the new land acquisition law came into force in early 2014, land prices have been on the rise, largely due to higher expectation of farmers, say industry players.

The enhanced scope of R&R package to more projects adds to industry's woes. A key change in the Ordinance is that the higher compensation and rehabilitation and resettlement package would also apply to earlier exempted 13 legislations. These include the Land Acquisition (Mines) Act 1885, Atomic Energy Act, 1962, Railway Act 1989, National Highways Act 1956, and Metro Railways (Construction of Works) Act, 1978. As a result, the cost for building highways and metro rail network are likely to go up. "Issues pertaining to paying the higher compensation based on the formula devised in the Act remain a concern… and are likely to affect most projects going forward," says Anuj Puri, chairman and country head, JLL India. Some legal experts feel that doing away with consent clause in certain projects might open them up to legal challenges. Legal challenges could potentially arise in cases where exemption granted to specific projects are not found to be in public interest, or if the government exercises their discretion in an arbitrary manner, notes Aakanksha Joshi, Associate Partner, Economic Laws Practice. The amendments to the land acquisition law might not turn out to be a game changer, but just a "good first roll-back step," as Babel of Feedback Infra puts it.

Courtesy: Business Standard